Insurance Inside Super

Some people hold multiple superannuation plans as they hold insurance cover. This is usually done to obtain cheaper insurance through an industry or retail fund, or due to health concerns that may affect your ability to take up new insurance.

Although this can be an effective strategy to maintain or even obtain insurance, as with most strategies there are some drawbacks. The two main drawbacks are that some funds will require you to maintain a minimum balance in order to be able to keep the insurance, and some also require ongoing contributions to be made for the cover to be held.

In some cases you will be notified of your insurance being cancelled if you do not meet their criteria, however in some cases you won’t find out until it comes time to claim. In order to help prevent this from occurring, there are a few things you can do:

– Have a read of your super providers insurance Product Disclosure Statement (PDS) to see if you need to keep a minimum balance or if there is a requirement for ongoing contributions, or both

– Speak to your fund and ask for confirmation of the rules for keeping insurance, and ask for it in writing.

– Make sure you leave enough to cover the minimum balance and at least one year’s worth of insurance premiums in the fund.

– Make sure, if you are considering rolling a portion of funds out of the fund, you leave enough funds to maintain this minimum. Be careful of using the ATO rollover form (NAT 74662) as this usually initiates a full rollover and therefore you may accidentally cancel your insurance.

– You may wish to consider letting your employer contributions continue to be paid to the fund holding the insurance, as this will help to ensure the balance remains above the minimum amount and satisfies the ongoing contributions clause, where applicable.

– If you don’t want the bulk of your superannuation funds invested with that super provider, you could do a further partial rollover when the balance is large enough. Be sure to check the super funds rules again to make sure they haven’t changed with regards to the insurance. Also be careful as some funds do charge a withdrawal fee so you need to take this fee into account if you’re rolling over funds on a regular basis.

As always JBS are here to help, so if you’re ever unsure feel free to contact JBS and we can make sure you have the right strategy in place when it comes to holding insurance in super.